The repurchase of mortgage means a renegotiation of the rate with your bank or with all the other banks or financial organizations. Indeed, for a few years rates have been falling sharply and in January 2020 mortgage rates have never been so low.
The rate proposed for a mortgage varies according to the quality of your file, the duration, the financial contribution as well as the commercial stake. The renegotiation of your mortgage has the advantages of reducing the monthly payment or reducing the duration of your mortgage.
What is a renegotiation or a repurchase of a mortgage?
A mortgage renegotiation implies that the borrower’s bank renegotiates the mortgage rate of his own client by making him a better proposal of borrowing rate for his mortgage.
A repurchase of mortgage is carried out with a bank which is not that of the borrower owner or the customer. So this competing bank will reimburse the mortgage with the borrower’s bank and it will make a loan offer with a more attractive rate.
What is the interest for the borrower to redeem his mortgage:
Buying a home loan means saving money in the long term. If a rate reduction of at least 0.5% is obtained.
Example with 0.5% less: You made a home loan of $ 200,000 in January 2017 over a period of 20 years (240 months) and at the rate of 3% and you repay a monthly payment of $ 1,106.43 per month excluding insurance.
In January 2020, a bank offers you to buy your home loan with a rate of 2.50% over an equivalent remaining term of 17 years (204 months). This will reimburse you a monthly payment of $ 1061.55 per month excluding insurance. A saving of $ 44.88 per month, or $ 9155.52 over a period of 17 years. The operation is profitable, but be careful not to forget to add the costs involved in a buyout of a mortgage. In the end, the gain is not as significant.
Example with 1% less:
We take the same amount of financing and the same duration, this brings the new maturity of the loan to $ 1020.42. This saves $ 86.01 per month, or $ 17,547.04 over 17 years (204 months). Remember to subtract the fees from the total credit gain.
Good Finance recommends at least one point difference and provided that you are on the first half of your real estate reimbursement.
What are the inseparable costs for buying back home loans?
- First of all, if you don’t renegotiate your home loans with your bank, there are early repayment indemnity (IRA) fees that are equivalent to the last 6 months of interest with a maximum ceiling of 3% of the principal repaid. The least costly amount for the borrower will be retained. This amount is owed to the bank you are leaving. If you renegotiate with your bank, it will often give you a gift, but it will improve its interest rate, nothing is free.
- The costs of handling the new bank are to be taken into account. They are however negotiable with the bank.
- The bank will not lend you without collateral except for a very short time. The new mortgage involves mortgage costs or bond costs ( surety company affiliated with the bank). In the case of redemption we no longer speak of IPPD registration of privilege of lenders of money as, during an acquisition, this is called a mortgage.
Loan insurance is to be negotiated with the bank which will take back your credit and will automatically offer group insurance, or else with an insurance broker like your loan repurchase broker for senior Good Finance who will offer you individual and often insurance much cheaper than group insurance. Individual insurance is calculated according to your age, the loan amount, the interest rate and the duration of the new loan repurchase.
Consequences for the bank to renegotiate its own mortgage
When the bank renegotiates the mortgage loan of its client it loses money, because taking back its own debt at a lower rate is financially unsuccessful. This is why banks are very reluctant to take on their own debt and they often drag on for several months in order to discourage their customers.
On the other hand, if the bank renegotiates the mortgage loan of its client, it keeps commercial contact with its client therefore and it keeps loan insurance and other insurance such as home insurance, car insurance, and investments as well as all derivative products (funeral guarantee, telephone, alarm, etc.). Banks no longer earn money on a mortgage, but on all banking products or derivatives. This renegotiation operation will be a win for both parties.